Exhibit 16-6 -If the Fed Is Targeting Interest Rates and Money Demand

question 59

Multiple Choice

Exhibit 16-6
-If the Fed is targeting interest rates and money demand shifts from D_m to D_m' in Exhibit 16-6, the Fed will

• A)do nothing and the interest rate will rise to i'
• B)do nothing and the interest rate will settle at i
• C)decrease the money supply to restore its target of i
• D)increase the money supply to restore its target of i
• E)decrease money demand back to D_m to restore its target of i

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Definitions:

Phase Voltage

The voltage measured in a single phase of a multi-phase system, often in a three-phase electrical system, relative to neutral.

Alternator

A machine used to generate AC by rotating conductors through a magnetic field.

Capacitance

The ability of a system to store an electrical charge per unit voltage, represented in farads.

Line Current

The current that flows through the conductors of an electrical distribution system or in any single conductor.